Crude Rises to Four-Month High on Middle East Tension

(Corrects reference in 10th paragraph to Syria bordering
Iran in story published June 14. )

June 14 (Bloomberg) -- West Texas Intermediate crude rose
to a four-month high after President Barack Obama was said to
authorize arming Syrian rebels groups, ratcheting up tensions in
a region home to about a third of the world’s oil supply.

Prices capped a second weekly gain after a U.S. official
familiar with the decision said Obama is issuing a classified
order to the Central Intelligence Agency to provide small arms
and ammunition to the Syrian opposition. The official asked not
to be identified. Yesterday, the administration said it had
confirmed the use of chemical weapons by President Bashar al-Assad’s forces during the civil war.

“We are closing the week out and no one really wants to be
short crude oil with escalating tension in the Middle East,”
said Bill Baruch, a senior market strategist at Iitrader.com in
Chicago. “The least resistance is higher.”

WTI for July delivery climbed $1.16, or 1.2 percent, to
$97.85 a barrel on the New York Mercantile Exchange, the highest
settlement since Jan. 30. The volume of all futures traded was
28 percent above the 100-day average for the time of day at 4:01
p.m. Prices increased 1.9 percent this week.

Brent for August settlement increased 98 cents, or 0.9
percent, to end the session at $105.93 a barrel on the London-based ICE Futures Europe exchange. Volume was 25 percent below
the 100-day average for the time of day.

Brent’s premium to WTI for August delivery widened to $7.86
from yesterday’s $7.56 based on July contracts.

WTI “just broke this year’s high, and the rally is taking
on the momentum of itself,” said Gene McGillian, an analyst and
broker at Tradition Energy in Stamford, Connecticut.

Syrian Opposition

Obama’s calculus on Syria has shifted as support for Assad
from Russia, Iran and Hezbollah has reversed opposition gains.
Iran is OPEC’s sixth-biggest oil producer.

“It’s particularly urgent right now in terms of the
situation on the ground, in some respect, because we have seen
Hezbollah and Iran increase their own involvement,” Ben Rhodes,
Obama’s deputy national security adviser, told reporters on a
conference call yesterday. “That has added an element of
urgency.”

Syria borders Iraq and is near Iran, countries that
together hold almost a fifth of the Organization of Petroleum
Exporting Countries’s output capacity, according to Bloomberg
estimates. Syria itself produced just 164,000 barrels a day of
the 28.3 million pumped in the Middle East last year, according
to BP Plc’s Statistical Review of World Energy.

Risk Premium

Oil is “padding the geopolitical risk premium given the
U.S. decision to support the Syrian rebels, with the market
fearing a broadening of the conflict rather than containment,”
said Tim Evans, an energy analyst at Citi Futures Perspective in
New York, in an e-mail.

Rhodes said yesterday that Assad’s forces had used the
nerve gas sarin on a “small scale” several times, causing 100
to 150 deaths. Obama repeatedly has said the use of chemical
weapons by Assad’s regime would be a red line for the U.S.

“The U.S. is sending weapons to Syria and is ratcheting up
geopolitical tensions,” McGillian said.

In Iran, voters went to the polls today to choose a
successor to President Mahmoud Ahmadinejad who may determine
whether the country’s international isolation will continue.
Iran holds the world’s fourth-largest oil reserves. Voting
closed at 11 p.m. local time after it was extended by five
hours, according to the Interior Ministry.

Iranian Election

Opinion polls show Iranian voters want a president who will
secure an end to sanctions to halt the country’s nuclear
program. The U.S. and Israel say the Persian Gulf nation is
secretly pursuing an atomic weapons capability, while Iran says
the program is for civilian energy and medical research.

“With the election, the concern is that you may see unrest
in Iran,” Lynch said.

The U.S. tightened sanctions against the Islamic republic
on Dec. 31, 2011. Iran’s crude production dropped to 2.5 million
barrels a day last month, down from 3.58 million in December
2011, estimates compiled by Bloomberg show.

West Texas Intermediate crude may decline next week as U.S.
supplies gained and on speculation that the Federal Reserve may
taper its monetary stimulus, a Bloomberg survey showed.

Electronic trading volume on the Nymex was 670,064
contracts as of 4:01 p.m. It totaled 564,743 contracts
yesterday, 6.2 percent lower than the three-month average. Open
interest was a record 1.83 million contracts.